28/02/2008 - 09:59

GRD pursues restructuring as profit rises

28/02/2008 - 09:59

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GRD Ltd has confirmed that it is looking at new ownership arrangements for its Global Renewables infrastructure arm, as its Minproc engineering business reported a strong rise in profits.

GRD pursues restructuring as profit rises

GRD Ltd has confirmed that it is looking at new ownership arrangements for its Global Renewables infrastructure arm, as its Minproc engineering business reported a strong rise in profits.

The group today reported a stronger $5.3 million net profit after tax from continuing operations for the 2007 calendar year, a 160 per cent increase on the previous year.

GRD chief executive Cliff Lawrenson said the 2007 result reflected an improved performance of core business GRD Minproc and a significant contribution from the Lancashire UK project of GRD subsidiary Global Renewables.

Earnings before tax from continuing operations were $9.8 million compared with $2.6 million for 2006.

Reported net profit after tax for the year was $3.9 million, including the losses associated with closing part of the Kirfield division.

This compared with reported net profit in 2006 of $57.5 million, which was inclusive of the accounting gain of $55.5 million from the contribution and sale of GRD's interest in Oceana Gold.

"We are pleased with the underlying performance of the business and we look forward with optimism to another strong operating performance in the 2008 financial year," Mr Lawrenson said.

Mr Lawrenson said GRD also proposed changes to the corporate and operational structure of Global Renewables in 2008 with a view to accelerating the return to investors.

"Combined, we believe the enhanced performance of GRD Minproc and the work on capturing the value of Global Renewables within a shorter time frame will add significant value to GRD shareholders," he said.

"It is important to remain mindful that GRD Minproc generates a significant portion of its revenue from design and construction work for Global Renewables."

Mr Lawrenson said GRD Minproc continued to perform well in the competitive mining services sector. GRD Minproc (excluding the Kirfield division) generated a 30 per cent increase in earnings before tax for 2007, to $27.5 million.

"The company has achieved significant milestones in 2007 including completing EPCM services, in joint venture with Hatch Associates, for BHP Billiton's landmark Ravensthorpe Nickel Project, where we continue to assist with ramp-up and commissioning," he said.

"During the year, we also commenced work on Freeport-McMoRan's major Tenke Fungurume copper project in the Democratic Republic of Congo.

"2008 has begun positively with the award of several key studies and the EPCM contract for Orezone Resources' Essakane Gold Project in Burkina Faso, West Africa.

"There is an abundance of opportunity in the global resources sector and we believe GRD Minproc is well positioned to capture substantial new contracts and maintain the current high levels of activity," he said.

Mr Lawrenson said GRD Minproc's growth in 2007 was boosted by contributions from the Company's off-shore operations, in particular its African hub.

In the Perth office, growth was constrained by a highly competitive labour market.

To counter this, GRD Minproc opened an office in Brisbane in October 2007 to tap into a significant market of engineering professionals and expanded its South American presence with the establishment of an office in Santiago, Chile, which will improve access to opportunities in the Andean region.

Mr Lawrenson said GRD Minproc's solid result was also constrained by the inconsistent financial performance of its construction, fabrication and maintenance arm, Kirfield Limited.

"In particular, Kirfield's fabrication workshop in Perth continued to struggle to compete with its international competitors, and as a result, a strategic decision was made to close the workshop.

Kirfield's core focus will now be project construction and maintenance work," he said.

Mr Lawrenson said Global Renewables had made a mixed contribution to group earnings.

"Global Renewables achieving financial close on the Lancashire Waste PFI Project was of great significance for our waste-to-resources business," he said.

However, the Eastern Creek operation in Australia has been slow to deliver the financial results we anticipated."

The Lancashire project will continue to provide positive returns to GRD with profits and fees during the construction phase, followed by annuity style profit contributions for the 25 year operating life of the waste network.

Further UK contract opportunities are currently being pursued with alliance partner Lend Lease Corporation, a consequence of Europe's strong focus on sustainable waste practices and the willingness to set prices that promote resource recovery over landfilling.

Mr Lawrenson said ongoing investment had been required at Eastern Creek as a result of the completion of rectification and optimisation works following fire damage to the compost hall in 2006.

During a rebuilding year, the facility processed 130,000 tonnes of waste (design capacity 175,000 tonnes) and averaged 96 per cent design capacity for the second half of 2007.

"With the facility now operating at a steady state, we have transitioned from a management team focused on ramp-up and commissioning to a team with significant operational expertise in the waste and recycling sector," he said.

In December 2007, GRD appointed Morgan Stanley to assess options for the potential re-structuring of the Global Renewables group with a view to maximising shareholder value.

"The process with Morgan Stanley is continuing and it supports the view that the international growth potential of Global Renewables is likely to be enhanced by restructuring its ownership or introducing a major strategic partner," said Mr Lawrenson.

"This would provide the size and capability to aggressively exploit opportunities and ensure the company becomes a long term sustainable business in the field of waste processing and clean energy generation.

"Waste diversion and recycling by processes such as Global Renewables' UR-3R™ are mandated in the UK and Europe, and will be increasingly sought in Australia and USA as emissions trading systems are introduced.

"Our objective is to advance the Global Renewables business as quickly as possible and protect the investment and interests of GRD shareholders."

The GRD board has determined that a final 2007 dividend of three cents per share unfranked will be paid on 4 April 2008. The record date for entitlement is 11 March 2008.

GRD shares closed 2 cents, or 1.22 per cent, lower to $1.65 each today.

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